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Changing States After You Retire Could Lower or Raise Your Taxes—Know Before You Move

Missy E
November 14, 2025

Key Takeaways

Moving to a different state after retirement could lower or increase your total tax burden depending on income tax rules, property tax rates, and how retirement income is treated.
Before relocating, it is essential to understand how your government pension, Social Security, and other income will be taxed at the state level.

Why State Taxes Matter More in Retirement

Once you retire, your income sources shift. You rely more on pensions, Social Security, Thrift Savings Plan (TSP) withdrawals, and possibly annuities. How each state taxes these sources can significantly affect your financial security. Some states fully tax retirement income, others partially exclude it, and a few don’t tax it at all.

In 2025, more retirees are re-evaluating where they live not just for lifestyle, but for financial efficiency. A move to a state with lower tax burdens might stretch your retirement savings further—but it could also come with trade-offs like higher sales tax, fewer healthcare facilities, or increased housing costs.

States With No Income Tax in 2025

As of 2025, the following states impose no individual income tax:

Alaska
Florida
Nevada
South Dakota
Tennessee
Texas
Washington
Wyoming

New Hampshire taxes only interest and dividends, not earned income or retirement income. For public sector retirees, this can look attractive at first glance. However, no income tax does not mean no taxes altogether. Many of these states offset the revenue loss with higher property taxes, sales taxes, or fees.

How States Treat Federal Retirement Income

Each state has different rules on taxing pensions. In 2025:

Some states exempt all government pensions.
Others exempt a portion based on age or income thresholds.
Some tax pensions fully like regular income.

For example:

Illinois, Pennsylvania, and Mississippi exempt virtually all federal retirement income.
California and Vermont treat federal pensions the same as regular income.
North Carolina used to exempt government pensions but changed its rules for new retirees after a specific cutoff date.

Review whether your FERS, CSRS, or military pension will be taxed in your prospective state. This could mean thousands of dollars in annual savings—or additional burdens.

What About Social Security Benefits?

At the federal level, your Social Security benefits are subject to tax if your combined income exceeds certain thresholds. But at the state level, the rules vary:

Over 30 states, including Arizona, California, and Florida, do not tax Social Security at all.
The remaining states either follow the federal formula or apply their own income-based thresholds.

In 2025, only a handful of states still tax Social Security benefits at all, and some are actively phasing it out. Still, if your retirement budget includes significant Social Security income, it’s worth confirming how it’s handled where you plan to move.

Property Taxes Can Offset Income Tax Savings

Many retirees focus on income tax, but property tax can quietly become the biggest state-level burden, especially if you own your home. Even in states with no income tax, high property tax rates could make living more expensive overall.

States like New Jersey, Illinois, and Connecticut have some of the highest property tax rates in the nation, while Alabama and Colorado have some of the lowest.

Also consider whether the state offers senior property tax exemptions or freezes. These programs vary widely in:

Age eligibility (typically 65+)
Income limitations
Whether it freezes assessed value or taxes owed

Understanding these details is crucial for long-term housing affordability.

Watch Out for Estate and Inheritance Taxes

Only a small number of states impose estate or inheritance taxes in 2025, but they can still catch retirees off guard:

Estate taxes apply to the total value of your estate when you pass.
Inheritance taxes apply to beneficiaries, depending on their relationship to you.

Currently, states like Maryland, Oregon, and Massachusetts have estate taxes with relatively low thresholds. If you plan to leave behind a sizable estate or property, these taxes may impact your beneficiaries more than expected.

Planning ahead—perhaps even moving before retirement—can help reduce or eliminate these taxes altogether.

State Sales Tax: The Hidden Cost

Sales tax can quietly erode your retirement spending power. States like Tennessee and Arkansas have some of the highest combined sales tax rates (state + local). Others like Delaware, Montana, and New Hampshire have no general sales tax.

Even if you’re moving to a state with low or no income tax, make sure to:

Check if groceries, medicine, or utilities are taxed.
Look at local sales tax add-ons, which can raise the effective rate.
Factor in how much of your monthly expenses go to taxable goods and services.

This can matter more if you’re planning to spend more on travel, hobbies, or household upgrades.

Timing the Move Can Affect Your Tax Year

When you move matters. If you relocate mid-year, you might be treated as a part-year resident in both your old and new state for tax purposes.

Here’s what to consider:

You may need to file tax returns in both states.
Pension payments received while living in a taxable state may still be taxed.
States use different rules to determine your residency (domicile vs. physical presence).

If your goal is to minimize your 2025 taxes, moving in early January or after December 31 might help you establish full-year residency in your new state.

Health Care Costs and Access Vary by State

While not a direct tax, healthcare is often your largest expense after housing. In retirement, access to quality care becomes more important—and more expensive.

Medicare provides a national baseline, but states vary in:

Supplement availability and cost
Access to providers and specialists
Medicaid eligibility for long-term care

If you move to a rural or under-served area for tax savings, you might spend more on transportation, wait longer for specialists, or pay higher out-of-pocket costs. Weigh these trade-offs before deciding.

Consider Long-Term Tax Planning—Not Just This Year

Relocation decisions shouldn’t hinge on a single tax year. Think about your full retirement horizon:

Will you downsize later?
Do you plan to leave your home to heirs?
Will your income rise or fall due to Required Minimum Distributions (RMDs)?
Could you later return to work part-time?

These factors affect your taxable footprint and future costs. A state that seems ideal now could become more expensive later—or vice versa.

Steps to Take Before You Move

Before changing states, take the following steps to protect your finances and minimize tax surprises:

Run a multiyear tax projection comparing your current and prospective state.
Check your pension’s taxability under your new state’s rules.
Review Social Security treatment, especially if it’s a primary income source.
Confirm residency rules, especially if you own homes in two states.
Evaluate property tax trends and exemptions for seniors.
Consider healthcare access and cost differences.
Speak to a tax professional or licensed agent to align your retirement plan with state-specific impacts.

Relocating without this due diligence could undo much of the financial benefit you hoped to gain.

Retirement Relocation Requires a Holistic View

Tax-friendly states are not automatically retirement-friendly. You need to evaluate the full picture—taxation, healthcare, housing, estate laws, and your lifestyle preferences. What saves you money in one area might cost you more in another.

Get in touch with a licensed agent listed on this website to get guidance tailored to your unique retirement strategy and relocation goals.